Why the Olympics Can No Longer Defy Gravity

NBC Will Lose Money on Games; Rights Fees Rise Quicker Than Ad Demand

CHICAGO (AdAge.com) -- When NBC shelled out $2.2 billion in 2003 for the rights to the 2010 Winter Olympics and the 2012 Summer Games, the Peacock network figured it would make millions while dominating 17 consecutive nights of TV and have a powerful promotional platform for its prime-time lineup.

What it wound up with is a loss leader that will be lucky to win 15 nights.

And if that's not troubling enough, the Games -- thought to be the event that unites the world -- is facing competition for global ad dollars from this year's World Cup.

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NBC Universal Sports President Dick Ebersol last week said he expected NBC to lose money on the games for the first time in memory, raising questions as to whether the struggles of sports marketing's ultimate platform are cyclical -- in this case, related to the economic downturn; a less appealing host country in Canada; the lack of stalwart American athletes in key sports; and even competition from this summer's World Cup -- or indicative of a deeper flaw in the Olympics franchise.

Regardless of where sports-business experts come down on that question, there's broad agreement that NBC overpaid, and that the astronomic rise of rights fees for the games -- which rose 50% over the previous cycle -- is at an end.

Fee correction
"I think this is a franchise where rights fees have outpaced the sponsorship demand," said former Anheuser-Busch media and sponsorship chief Tony Ponturo. "The next several years, there will be extreme accountability for marketing dollars and their ROI. ... This should have some impact as a correction on rights fees that got out of whack, just like housing and other over-appreciated items."

And, indeed, some observers saw Mr. Ebersol's public comments as a negotiating ploy, a way to scare off potential competitors and let the International Olympic Committee know that the rights-fee increases it has become accustomed to are fleeting, or ought to be.

The IOC has responded to that by indicating it may delay bidding on future games. And, given the myriad signs that point to lackluster financial and ratings performances in Vancouver, it might be wise to wait until the 2012 London games to renew interest.

The Winter Game's financial performance faces a series of hurdles, led by an economic downturn that has squeezed marketing budgets and forced many longtime mainstays to cut back.

Then there's a host country, Canada, that is neither a major profit pool such as the U.S. or U.K. nor a booming growth market such as China or Brazil that's critical to global marketers' long-term ambitions. In a year where the FIFA World Cup is being held in a developing-world site (South Africa), that's relegated the Olympics to second-fiddle status for some global marketers.

Regional play
Anheuser-Busch InBev, for instance, is treating the Games largely as a North American event, with the bulk of its activation in Canada and the U.S., where it sponsors the U.S. team. (A-B walked away from its exclusive TV rights during the Winter Olympics this year, which were scooped up by MillerCoors' Molson.) But while A-B is using the Olympics as a regional play, it's wielding its sponsorship of the World Cup as a global platform that's being managed at the top of the company.

McDonald's, like many major Olympics marketers, focuses much of its energy on specific athletes. And, that, too, figures to be a weakness in Vancouver, because U.S. TV ratings are almost always highest during women's figure skating, and the U.S. team lacks a medal hopeful in that sport for the first time since 1964.

And there's also a major ratings competitor, seeing as at least two of the 17 nights of the Olympics are likely to compete in prime time against Fox's "American Idol." TV executives at NBC and elsewhere downplay the latest difficulties as a consequence of a recession. They note many other big-money rights deals lose money -- even Oprah Winfrey's show is a loss leader for many affiliates -- and that NBC's sales have strengthened as the games have approached.

But close listeners such as veteran sports-business consultant Marc Ganis say that's overshadowing a larger problem.

If you listen to what Ebersol said, he said it wasn't the fault of sales, and that the production costs aren't too high, so -- ding ding ding -- what that means is they paid too much," he said.

Competition with the Cup

Among the many issues troubling the 2010 Vancouver Olympics is competition for global ad budgets from this summer's FIFA World Cup. Anheuser-Busch dropped its IOC-level deal as the games' international beer sponsor after Beijing (A-B remains active at the local level), but the two games share several high-level sponsors.